By James Hancocks
According to Investopedia, outsourcing is defined as “a practice used by different companies to reduce costs by transferring portions of work to outside suppliers rather than completing it internally.”
Companies do this to save costs and make the lives of managers a tad easier in that it saves them from having to develop entirely new products, processes and frameworks from scratch. Outsourcing is the foundation of most B2B (business to business) transactions and relationships. The simple fact is in many instances not only is it cheaper for companies to outsource a particular function, but it is also higher quality (i.e. going beyond simple tech support from India). In advertising small and medium sized businesses have the opportunity to move past the dodgy digital cameras and instead pay for studios to sell their products for them at relatively high production levels. Apple doesn’t actually make the IPhone, it merely designs it, provides the brand and controls the supply chain, the phones themselves are actually manufactured and assembled in warehouses and factories god knows where.
But if there is one true pioneer of outsourcing it is this great man (http://www.news.com.au/finance/work/software-developer-busted-for-outsourcing-own-job-to-china/story-e6frfm9r-1226556262107). A software developer who outsourced his entire job to China and then sat around at work reading Reddit, checking Facebook and watching cat videos. This absolute legend has achieved the pinnacle of economic utility maximisation and should be hailed for his accomplishments and vision.
It’s irrefutable, this outsourcing thing is amazing, paying people less money than it would cost to do things yourself and thereby increasing your total gain. But, if outsourcing has worked out so well for corporations, can it work on a personal level? In fact it already does, we personally outsource tasks in our lives every day, individuals are utility maximisers after all in that rational people seek to minimise their losses and increase their economic satisfaction/gain. Every action has a benefit, it also has a cost and more specifically an opportunity cost. What benefit have we forgone when undertaking one activity for the other, time is money after all, more literally than to be expected. For example, I could, just maybe, write a UQES blog on personal outsourcing on my day off or I could sit on my couch and watch Netflix all day. If I wrote that blog, I’d then miss out on a whole day’s worth of Netflix and the economic satisfaction that it brings. Conversely, let’s say for no particular reason, I’m up at midnight and have the choice of either sleeping or writing that blog, if I write the blog post Nick the Publications Director will be happy, if I do though I’ll miss out on sleep which is probably important and may cost me the next day. If I do sleep though, I run the risk of Nick being one unhappy chap. This is quite a dilemma. The solution? I outsource writing the blog post to an eager high school economics student who clearly values money more than myself. But then again that’s all in a perfect world, all theory.
However personal outsourcing is something we do quite often. More and more households are now employing cleaners and maids to come in every now and then. Why bother beginning the process of cleaning your house, procrastinating for half the time, being unproductive for the other half, when you can hire a maid to do all of it in an hour for only $25! That’s time that could be spent with your friends, with your family or spending money on other cool things. Let’s look at another example, hairdressing, this is something that could you do yourself only you may end up looking like Kim Jong Un or you could hire a professional anywhere from $10-$40 to make you look like a normal person.
Let’s get a little dry here, let’s talk about the actual economics behind this. Very simply let’s say a working professional is earning $50 an hour and this person is also very time conscious. Now, during his time off he needs to clean his house which will take two hours by himself – that’s two less hours hanging out with his friends. Cleaning his house by himself has an opportunity cost of $100, time he could have otherwise spent working and earning his wage. If he works for one hour though, he has enough money to pay a cleaner $25 to clean his house, have money left over and a few more hours in his day to spend on more satisfying activities. If that isn’t maximising personal utility and increasing his economic efficiency I don’t know what is.
The personal outsourcing business is taking off, people are now paying for companies to do their own personal finances and budgets for them and let’s not forget kids have been mowing lawns for decades. In a 24 hour day the average person’s time is split up between either working or what we refer to as leisure activities, activities that don’t increase their income, part of those activities however are mandatory and not actually fun (like doing the laundry, paying bills, mowing the lawn..). What price can you put on the joy of a high paid executive who just wants to get home and spend time with his kids? What about the childcare industry? Instead of quitting their jobs it is obviously more utility maximising for parents to go to work and pay someone else to look after their children, unless of course childcare costs more than what they earn.
So what can we say at the end of this? We’ve learnt that being lazy and paying other people to do stuff for us isn’t necessarily being lazy. No, it’s maximising our personal utility, it’s creating jobs and it’s creating a more efficient society where people can focus on what they do best, things that actually matter to them. Personal outsourcing isn’t just some new lifestyle, it’s something we do every day and it’s something that works.